Neglected minority banks now attract billions of dollars in financing
The US government gives billions of dollars to minority-owned banks in an effort to help revitalize low-income communities in cities like Atlanta, Detroit and New Orleans. Some of the country’s largest financial institutions are also participating, recently committing around $ 140 million to Banks of Color.
Minority Depository Institutions, or MDIs, Received $ 50 Million as Part of Bank of America Billion commitment last year to improve racial equality, as well as $ 50 million and $ 40 million investments, Wells Fargo and JPMorgan Chase, respectively, in similar commitments to support under-represented communities.
Executives of major U.S. banks say they invest in IDMs because community financial institutions are seen as the gatekeepers of loans and funding that drive economic growth in black and Hispanic neighborhoods.
âThe country’s IDMs are vital for minority communities, but over the past two decades many have refused or closed,â William Daley, vice president of public affairs for Wells Fargo, said in a statement. declaration Last week.
The contributions of some of America’s largest banks are remarkable because they have long drawn fire for not doing enough to invest in communities of color. Critics also point to the record of some Wall Street companies in marketing subprime home loans in minority communities before the 2008 financial crisis and in the abusive foreclosure of many homes in majority minority neighborhoods after the housing crash. .
The contributions also come at a time when Americans are paying more attention to American business to play their part in addressing racial inequality. In the months leading up to George Floyd’s murder last year in Minnesota, companies announced plans to help communities of color either through targeted hiring or funding from racial justice organizations. The banks decided their best option was to inject additional liquidity into smaller banks of color.
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For MDIs, the tens of millions of dollars in investments mean they can provide more loans and banking services to communities of color, said Brian Lamb, global head of diversity and inclusion at JPMorgan Chase. This increase in liquidity is part of Chase Bank’s larger plan to help close the country’s racial wealth gap, Lamb told CBS MoneyWatch.
âOur dollars ultimately create scale and impact in the community through banks that are trusted and respected by small businesses and black consumers,â Lamb said.
Some of the money from the big banks has already been sent to MDIs, while other parts will be distributed through an application process. MDIs that have received contributions include Liberty Bank in Louisiana, Commonwealth National Bank of Alabama, and Carver Federal Savings Bank in New York.
The recent emphasis on transferring millions of dollars to minority-owned banks stems from the realization by large banks of the reputation for reliability that these institutions have established within their communities, sometimes over decades. said Gregory Fairchild, a business professor at the University of Virginia and an expert in the area of ââcommunity development finance.
MDIs generally do not have nationwide branch networks. Instead, they operate in cities with large minority populations and market themselves as the local, user-friendly option for banking, Fairchild said. In doing so, MDIs have retained customers from Asian, Black and Hispanic communities, he said. This community trust has made MDIs the leaders in the lending industry for people of color, said Fairchild.
MDIs have kept their reputation in the banking world over the years despite their declining numbers since 2001, Fairchild said. Big banks that don’t share the same positive relationship with communities of color therefore use MDIs to contact them because âit’s easier to just donate to banks that are already there,â he said.
âOver the past year a number of organizations have awakened to the structural foundations of racial inequality,â said Fairchild. “It is not known if the recent influx of funds is a response to this awakening. What is clear is that it is coming at the right time.”
The federal government is also injecting billions of dollars into minority-run banks. The Treasury Department in March ad it is investing $ 9 billion in community development finance institutions (CDFIs), as well as in IDMs, calling the effort a “new initiative designed to support access to capital in communities traditionally excluded from the financial system.”
“These are institutions that Congress has recognized as having the capacity to access communities of color,” a Treasury official told CBS MoneyWatch, adding that the $ 9 billion is the largest amount minority banks hold. have never received federal aid.
The money can be used by banks to provide grants, loans, or loan waivers to minority-owned businesses and struggling individuals. The first round of funding will be released this summer, the treasury official said.
Color banks, especially those run by blacks, have struggled in recent history to add new customers and attractive the large amounts of capital required to lend money to low-income areas. This is one of the main reasons why some of them have shutters.
But now, with more capital to deploy, MDIs now need to “increase their brand exposure,” Fairchild said. This likely means stepping up their marketing efforts to convince consumers that MDI auto loans, credit cards, savings accounts, and other services are competitive with other banks’ offerings.
Carver Bank will use the extra attention to highlight its work, CEO Michael Pugh told CBS MoneyWatch.
Carver has invested $ 23 million in minority women and entrepreneurs in recent years and plans to do more of the same with additional funding from Chase, Pugh said. Chase’s investment also allowed Carver to add staff to its small business lending department and revamp the bank’s website.
âWhat I’m most excited about is that we will be able to use this capital to help small businesses with loans and product expansion to maintain and grow relationships with our customers,â Pugh said.